[Federal Register Volume 78, Number 140 (Monday, July 22, 2013)]
[Notices]
[Pages 43930-43941]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17498]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
Proposed Exemptions From Certain Prohibited Transaction
Restrictions
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of Proposed Exemptions.
-----------------------------------------------------------------------
SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the
Internal Revenue Code of 1986 (the Code). This notice includes the
following proposed exemptions: D-11506, UBS AG and Its Current and
Future Affiliates and Subsidiaries (collectively, UBS or the
Applicant); D-11742 thru D-11746, The ABB Inc. Cash Balance Pension
Plan (the Cash Balance Plan); the Cash Balance Pension Plan for Certain
Represented Employees of ABB Inc. (the Union Cash Balance Plan); the
Pension Plan for Employees of the Process Analytics Division of ABB
Inc. Represented by the Laborer's International Union of North America
(AFL-CIO), Local No. 1304 (the Process Analytics Plan); the Pension
Plan of Fischer & Porter Company (the Fisher & Porter Plan); and the
ABB Inc. Pension Plan (UE 625 & 626) (the UE 625 & 626 Plan) (each a
Plan, and collectively, the Plans); and D-11767, D-11768 and D-11769,
American International Group, Inc. Incentive Savings Plan (the Savings
Plan), American General Agents' & Managers' Thrift Plan (the Thrift
Plan), and Chartis Insurance Company--Puerto Rico Capital Growth Plan
(the Chartis Plan)(collectively, the Plans).
DATES: All interested persons are invited to submit written comments or
requests for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice.
ADDRESSES: Comments and requests for a hearing should state: (1) The
name, address, and telephone number of the person making the comment or
request, and (2) the nature of the person's interest in the exemption
and the manner in which the person would be adversely affected by the
exemption. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing.
All written comments and requests for a hearing (at least three
copies) should be sent to the Employee Benefits Security Administration
(EBSA), Office of Exemption Determinations, Room N-5700, U.S.
Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210.
Attention: Application No., stated in each Notice of Proposed
Exemption. Interested persons are also invited to submit comments and/
or hearing requests to EBSA via email or FAX. Any such comments or
requests should be sent either by email to: moffitt.betty@dol.gov, or
by FAX to (202) 219-0204 by the end of the scheduled comment period.
The applications for exemption and the comments received will be
available for public inspection in the Public Documents Room of the
Employee Benefits Security Administration, U.S. Department of Labor,
Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210.
Warning: All comments will be made available to the public. Do
not include any personally identifiable information (such as Social
Security number, name, address, or other contact information) or
confidential business information that you do not want publicly
disclosed. All comments may be posted on the Internet and can be
retrieved by most Internet search engines.
SUPPLEMENTARY INFORMATION:
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
The proposed exemptions were requested in applications filed
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the
Code, and in accordance with procedures set forth in 29 CFR Part 2570,
Subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C.
App. 1 (1996), transferred the authority of the Secretary of the
Treasury to issue exemptions of the type requested to the Secretary of
Labor. Therefore, these notices of proposed exemption are issued solely
by the Department.
---------------------------------------------------------------------------
\1\ The Department has considered exemption applications
received prior to December 27, 2011 under the exemption procedures
set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August
10, 1990).
---------------------------------------------------------------------------
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
UBS AG and Its Current and Future Affiliates and Subsidiaries
(Collectively, UBS or the Applicant) Located in New York, New York
[Application No. D-11506]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (ERISA or the Act) and section 4975(c)(2) of
the Internal Revenue Code of 1986, as amended (the Code), and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(76 FR 66637, 66644, October 27, 2011).\2\
---------------------------------------------------------------------------
\2\ For purposes of this proposed exemption, references to
section 406 of ERISA should be read, unless otherwise specified, to
refer to the corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------
[[Page 43931]]
Section I. Sales of Auction Rate Securities From Plans to UBS:
Unrelated to a Settlement Agreement
If the proposed exemption is granted, the restrictions of section
406(a)(1)(A) and (D) and section 406(b)(1) and (2) of the Act and the
taxes imposed by section 4975 of the Code, by reason of section
4975(c)(1)(A), (D), and (E) of the Code, shall not apply, effective
February 1, 2008, to the sale by a Plan (as defined in section V(e)) of
an Auction Rate Security (as defined in section V(c)) to UBS, where
such sale (an Unrelated Sale) is unrelated to, and not made in
connection with, a Settlement Agreement (as defined in section V(f)),
provided that the conditions set forth in Section II have been met.
Section II. Conditions Applicable to Transactions Described in Section
I
(a) The Plan acquired the Auction Rate Security in connection with
brokerage or advisory services provided by UBS;
(b) The last auction for the Auction Rate Security was
unsuccessful;
(c) Except in the case of a Plan sponsored by UBS for its own
employees (a UBS Plan), the Unrelated Sale is made pursuant to a
written offer by UBS (the Unrelated Offer) containing all of the
material terms of the Unrelated Sale, including, but not limited to,
the most recent rate information for the Auction Rate Security (if
reliable information is available). Either the Unrelated Offer or other
materials available to the Plan provide the identity and par value of
the Auction Rate Security. Notwithstanding the foregoing, in the case
of a pooled fund maintained or advised by UBS, this condition shall be
deemed met to the extent each Plan invested in the pooled fund (other
than a UBS Plan) receives written notice regarding the Unrelated Sale,
where such notice contains the material terms of the Unrelated Sale
(including, but not limited to, the material terms described in the
preceding sentence);
(d) The Unrelated Sale is for no consideration other than cash
payment against prompt delivery of the Auction Rate Security;
(e) The sales price for the Auction Rate Security is equal to the
par value of the Auction Rate Security, plus any accrued but unpaid
interest or dividends; \3\
---------------------------------------------------------------------------
\3\ This proposed exemption does not address tax issues. The
Department has been informed by the Internal Revenue Service and the
Department of the Treasury that they are considering providing
limited relief from the requirements of sections 72(t)(4),
401(a)(9), and 4974 of the Code with respect to retirement plans
that hold Auction Rate Securities. The Department has also been
informed by the Internal Revenue Service that if Auction Rate
Securities are purchased from a Plan in a transaction described in
sections I and III at a price that exceeds the fair market value of
those securities, then the excess value would be treated as a
contribution for purposes of applying applicable contribution and
deduction limits under sections 219, 404, 408, and 415 of the Code.
---------------------------------------------------------------------------
(f) The Plan does not waive any rights or claims in connection with
the Unrelated Sale;
(g) The decision to accept the Unrelated Offer or retain the
Auction Rate Security is made by a Plan fiduciary or Plan participant
or beneficial owner of an individual retirement account (an IRA, as
described in section V(e) below) who is independent (as defined in
section V(d)) of UBS. Notwithstanding the foregoing: (1) In the case of
an IRA, which is beneficially owned by an employee, officer, director
or partner of UBS, or a relative of any such persons, the decision to
accept the Unrelated Offer or retain the Auction Rate Security may be
made by such employee, officer, director or partner; or (2) in the case
of a UBS Plan or a pooled fund maintained or advised by UBS, the
decision to accept the Unrelated Offer may be made by UBS after UBS has
determined that such purchase is in the best interest of the UBS Plan
or pooled fund; \4\
---------------------------------------------------------------------------
\4\ The Department notes that the Act's general standards of
fiduciary conduct also would apply to the transactions described
herein. In this regard, section 404 requires, among other things,
that a fiduciary discharge his duties respecting a plan solely in
the interest of the plan's participants and beneficiaries and in a
prudent manner. Accordingly, a plan fiduciary must act prudently
with respect to, among other things, the decision to sell the
Auction Rate Security to UBS for the par value of the Auction Rate
Security, plus any accrued but unpaid interest or dividends. The
Department further emphasizes that it expects Plan fiduciaries,
prior to entering into any of the proposed transactions, to fully
understand the risks associated with this type of transaction
following disclosure by UBS of all relevant information.
---------------------------------------------------------------------------
(h) Except in the case of a UBS Plan or a pooled fund maintained or
advised by UBS, neither UBS nor any affiliate exercises investment
discretion or renders investment advice within the meaning of 29 CFR
2510.3-21(c) with respect to the decision to accept the Unrelated Offer
or retain the Auction Rate Security;
(i) The Plan does not pay any commissions or transaction costs with
respect to the Unrelated Sale;
(j) The Unrelated Sale is not part of an arrangement, agreement or
understanding designed to benefit a party in interest to the Plan;
(k) UBS and its affiliates, as applicable, maintain, or cause to be
maintained, for a period of six (6) years from the date of the
Unrelated Sale, such records as are necessary to enable the persons
described below in paragraph (l)(1), to determine whether the
conditions of this exemption, if granted, have been met, except that--
(1) No party in interest with respect to a Plan which engages in an
Unrelated Sale, other than UBS and its affiliates, as applicable, shall
be subject to a civil penalty under section 502(i) of the Act or the
taxes imposed by section 4975(a) and (b) of the Code, if such records
are not maintained, or not available for examination, as required,
below, by paragraph (l)(1); and
(2) A separate prohibited transaction shall not be considered to
have occurred solely because, due to circumstances beyond the control
of UBS or its affiliates, as applicable, such records are lost or
destroyed prior to the end of the six-year period;
(l)(1) Except as provided below in paragraph (l)(2), and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to above in paragraph (k) are
unconditionally available at their customary location for examination
during normal business hours by--
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the U.S. Securities and
Exchange Commission; or
(B) Any fiduciary of any Plan, including any IRA owner, that
engages in a Sale, or any duly authorized employee or representative of
such fiduciary; or
(C) Any employer of participants and beneficiaries and any employee
organization whose members are covered by a Plan that engages in the
Unrelated Sale, or any authorized employee or representative of these
entities;
(2) None of the persons described above in paragraph (l)(1)(B)-(C)
shall be authorized to examine trade secrets of UBS, or commercial or
financial information which is privileged or confidential; and
(3) Should UBS refuse to disclose information on the basis that
such information is exempt from disclosure, UBS shall, by the close of
the thirtieth (30th) day following the request, provide a written
notice advising that person of the reasons for the refusal and that the
Department may request such information.
[[Page 43932]]
Section III. Sales of Auction Rate Securities From Plans to UBS:
Related to a Settlement Agreement
If the proposed exemption is granted, the restrictions of section
406(a)(1)(A) and (D) and section 406(b)(1) and (2) of ERISA and the
taxes imposed by section 4975 of the Code, by reason of section
4975(c)(1)(A), (D) and (E) of the Code, shall not apply, effective
February 1, 2008, to the following transactions: (a) The acquisition by
a Plan, as described in section V(e), of certain rights issued to
owners of Auction Rate Securities by UBS AG (ARS Rights) in connection
with a Settlement Agreement, (b) the sale of an Auction Rate Security
to UBS pursuant to such ARS Rights, where such sale (a Settlement Sale)
is related to, and made in connection with, a Settlement Agreement, and
(c) the sale of an Auction Rate Security to UBS where such sale is made
pursuant to Section 15 of the Texas Settlement Agreement (the Section
15 Texas Settlement Sale), provided that the conditions set forth in
Section IV below are met.
Section IV. Conditions Applicable to Transactions Described in Section
III
(a) The terms and delivery of the offer of ARS Rights (the ARS
Rights Offer) are consistent with the requirements set forth in the
Settlement Agreement;
(b) UBS sends notice of the ARS Rights Offer to the Plans,
including an explanatory cover letter and prospectus for the ARS Rights
under the Securities Act of 1933 (the Securities Act), as amended.
Notwithstanding the above, notice is not required to be sent to the
underlying investors in pooled funds maintained or advised by UBS (but
shall be provided to the pooled funds);
(c) Under the terms of the ARS Rights Offer, over certain periods
of time described below (the Exercise Periods), Eligible Customers who
accept the ARS Rights Offer are entitled to put (i.e., sell), for par
value (plus accrued but unpaid interest or dividends), any of their
Auction Rate Securities to UBS at a time of their choosing, and UBS is
entitled to call any of those Auction Rate Securities at any time, for
par value (plus accrued but unpaid interest or dividends).
(d) Eligible Customers holding ARS Rights who validly accept the
ARS Rights Offer will grant to UBS the sole discretion and right to
sell or otherwise dispose of, and/or enter orders in the auction
process with respect to, the Eligible Customers' eligible Auction Rate
Securities on their behalf until the expiration date of the related ARS
Right, without prior notification, so long as the Eligible Customers
receive a payment of par plus accrued but unpaid interest or dividends
upon any sale or disposition;
(e) Plans pay no commissions or transaction costs in connection
with the acquisition of ARS Rights;
(f) In the case of a UBS Plan or pooled fund advised by UBS, the
decision to accept the ARS Rights Offer and any subsequent decision to
put Auction Rate Securities to UBS or, under the Texas Settlement, sell
the Auction Rate Securities to UBS, may be made by UBS after UBS has
determined that such transaction is in the best interest of the UBS
Plan or pooled fund.
(g) In the case of an IRA owned by an employee, officer, director
or partner of UBS or a relative of any such persons, the IRA owner
makes an independent determination whether to accept the ARS Rights
Offer and any subsequent decision to put Auction Rate Securities to UBS
or, under the Texas Settlement, sell the Auction Rate Securities to
UBS;
(h) In the case of Plans not described in paragraph IV(f) or IV(g)
above, a person independent of UBS makes the determination whether to
accept the ARS Rights Offer and any subsequent decision to put Auction
Rate Securities to UBS during the applicable Exercise Period or, under
the Texas Settlement, sell the Auction Rate Securities to UBS, except
with respect to permitted calls under the ARS Rights, consistent with a
registration statement under the Securities Act, as amended (the
Registration Statement);
(i) The ARS Rights Offer, or other documents available to the Plan,
specifically describe, among other things:
(1) How a Plan may determine: the Auction Rate Securities held by
the Plan with UBS, the purchase dates for the Auction Rate Securities,
and (if reliable information is available) the most recent rate
information for the Auction Rate Securities;
(2) The number of shares and par value of the Auction Rate
Securities available for purchase under the ARS Rights Offer;
(3) The background of the ARS Rights Offer;
(4) That participating in the ARS Rights Offer will not result in
or constitute a waiver of any claim of the tendering Plan;
(5) The methods and timing by which Plans may accept the ARS Rights
Offer;
(6) The purchase dates, or the manner of determining the purchase
dates, for Auction Rate Securities tendered pursuant to the ARS Rights
Offer;
(7) The timing for acceptance by UBS of tendered Auction Rate
Securities;
(8) The timing of payment for Auction Rate Securities accepted by
UBS for payment;
(9) The expiration date of the ARS Rights Offer;
(10) The fact that UBS may make purchases of Auction Rate
Securities outside of the ARS Rights Offer and may otherwise buy, sell,
hold or seek to restructure, redeem or otherwise dispose of the Auction
Rate Securities;
(11) A description of the risk factors relating to the ARS Rights
Offer as UBS deems appropriate;
(12) How to obtain additional information concerning the ARS Rights
Offer; and
(13) The manner in which information concerning material amendments
or changes to the ARS Rights Offer will be communicated to affected
Plans;
(j) The terms of any Settlement Sale or Section 15 Texas Settlement
Sale are consistent with the requirements set forth in the applicable
Settlement Agreement and, where applicable, the terms set forth in the
ARS Rights prospectus.
(k) All of the conditions in Section II have been met with respect
to the ARS Rights Offer; and
(l) All of the conditions in Section 15 of the Texas Settlement
Agreement have been met with respect to any Section 15 Texas Settlement
Sale.
Section V. Definitions
For purposes of this proposed exemption:
(a) The term affiliate means: Any person directly or indirectly,
through one or more intermediaries, controlling, controlled by, or
under common control with such other person;
(b) The term control means: The power to exercise a controlling
influence over the management or policies of a person other than an
individual;
(c) The term Auction Rate Security means a security that:
(1) Is either a debt instrument (generally with a long-term nominal
maturity) or preferred stock; and
(2) Has an interest rate or dividend that is reset at specific
intervals through a Dutch Auction process;
(d) A person is independent of UBS if the person is:
(1) Not UBS or an affiliate; and (2) not a relative (as defined in
ERISA section 3(15)) of the party engaging in the transaction;
(e) The term Plan means: An individual retirement account or
similar account described in section 4975(e)(1)(B) through (F) of the
Code (an IRA); an employee benefit plan as
[[Page 43933]]
defined in section 3(3) of ERISA; or an entity holding plan assets
within the meaning of 29 CFR 2510.3-101, as modified by ERISA section
3(42); and
(f) The term Settlement Agreement means: A written legal settlement
agreement involving UBS and a U.S. state or federal authority (a
Settlement) that provides for the purchase of an Auction Rate Security
by UBS from a Plan and/or the issuance of ARS Rights.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of February 1, 2008.
Summary of Facts and Representations
1. UBS AG (UBS or the Applicant) is a financial services
corporation with headquarters located in Zurich, Switzerland. UBS has
banking divisions and subsidiaries around the world, including in the
United States, with its United States headquarters located in New York,
New York and Stamford, Connecticut.
2. The Applicant describes Auction Rate Securities (or ARS) and the
arrangement by which ARS are bought and sold as follows. ARS are
securities (issued as debt or preferred stock) with an interest rate or
dividend that is reset at periodic intervals pursuant to a process
called a Dutch Auction. Investors submit orders to buy, hold, or sell a
specific ARS to a broker-dealer selected by the entity that issued the
ARS. The broker-dealers, in turn, submit all of these orders to an
auction agent. The auction agent's functions include collecting orders
from all participating broker-dealers by the auction deadline,
determining the amount of securities available for sale, and organizing
the bids to determine the winning bid. If there are any buy orders
placed into the auction at a specific rate, the auction agent accepts
bids with the lowest rate above any applicable minimum rate and then
successively higher rates up to the maximum applicable rate, until all
sell orders and orders that are treated as sell orders are filled. Bids
below any applicable minimum rate or above the applicable maximum rate
are rejected. After determining the clearing rate for all of the
securities at auction, the auction agent allocates the ARS available
for sale to the participating broker-dealers based on the orders they
submitted. If there are multiple bids at the clearing rate, the auction
agent will allocate securities among the bidders at such rate on a pro-
rata basis.
3. The Applicant states that, under a typical Dutch Auction
process, UBS is permitted, but not obligated, to submit orders in
auctions for its own account either as a bidder or a seller and
routinely does so in the auction rate securities market in its sole
discretion. UBS may place one or more bids in an auction for its own
account to acquire ARS for its inventory, to prevent: (a) A failed
auction (i.e., an event where there are insufficient clearing bids
which would result in the auction rate being set at a specified rate,
resulting in no ARS being sold through the auction process); or (b) an
auction from clearing at a rate that UBS believes does not reflect the
market for the particular ARS being auctioned.
4. The Applicant states that for many ARS, UBS has been appointed
by the issuer of the securities to serve as a dealer in the auction and
is paid by the issuer for its services. That agreement provides that
UBS will receive from the issuer auction dealer fees based on the
principal amount of the securities placed through UBS.
5. The Applicant states further that UBS may share a portion of the
auction rate dealer fees it receives from the issuer with other broker-
dealers that submit orders through UBS, for those orders that UBS
successfully places in the auctions. Similarly, with respect to ARS for
which broker-dealers other than UBS act as dealer, such other broker-
dealers may share auction dealer fees with UBS for orders submitted by
UBS.
6. Since February 2008, the Applicant represents that the
significant majority of auctions have been unsuccessful. According to
the Applicant, the current state of the ARS market remains illiquid. As
a result, Plans holding ARS may not have sufficient liquidity to make
benefit payments, mandatory payments and withdrawals and expense
payments when due.\5\
---------------------------------------------------------------------------
\5\ The Department notes that Prohibited Transaction Exemption
80-26 (45 FR 28545 (April 29, 1980), as most recently amended at 71
FR 17917 (April 7, 2006)) permits interest-free loans or other
extensions of credit from a party in interest to a plan if, among
other things, the proceeds of the loan or extension of credit are
used only: (1) For the payment of ordinary operating expenses of the
plan, including the payment of benefits in accordance with the terms
of the plan and periodic premiums under an insurance or annuity
contract, or (2) for a purpose incidental to the ordinary operation
of the plan.
---------------------------------------------------------------------------
7. The Applicant represents that, in certain instances, UBS may
have previously advised or otherwise caused a Plan to acquire and hold
an Auction Rate Security.\6\ In connection with UBS's role in the
acquisition and holding of ARS by various UBS clients, including the
Plans, UBS entered into Settlement Agreements with certain U.S. states
and federal authorities (as described below), and UBS requests
exemptive relief for three categories of ARS transactions: (a) Where
UBS is required under a Settlement Agreement to send to Plans a written
offer to acquire the ARS (i.e., a Settlement Sale); (b) where, under
Section 15 of the Texas Settlement, UBS is required to purchase Auction
Rate Securities from certain specified categories of holders who
contact UBS (i.e., a Section 15 Texas Settlement Sale); and (c) where
UBS initiates an ARS sale by sending to a Plan a written offer to
acquire the ARS, notwithstanding that such offer is not required under
a Settlement Agreement (i.e., an Unrelated Sale).
---------------------------------------------------------------------------
\6\ The relief contained in this proposed exemption does not
extend to the fiduciary provisions of section 404 of the Act.
---------------------------------------------------------------------------
8. The Applicant states that, pursuant to the Settlements, UBS
offered the ARS Rights to designated customers who bought certain ARS
from UBS (i.e., the Eligible Customers).\7\ The ARS Rights were issued
by UBS AG pursuant to the Registration Statement, and notice \8\ of the
ARS Rights Offer, consisting of an explanatory cover letter and a
prospectus, was sent to such Eligible Customers. However, notice was
not required to be sent to the underlying investors of pooled funds
maintained or advised by UBS (but was required to be provided to the
pooled funds).\9\
---------------------------------------------------------------------------
\7\ Individual or charitable account holders with less than $1
million in total in their UBS accounts on a marketing household
basis as of August 8, 2008, received Series A-1 and/or A-2 ARS
Rights. The Exercise Period for Series A-1 and A-2 began October 31,
2008, and ended January 4, 2011.
Individual or charitable holders with $1 million or more in
total for their UBS accounts on a marketing household basis as of
August 8, 2008; all government entity holders; and small business
holders with less than $10 million in total in their UBS accounts on
a marketing household basis and total balance sheet assets of less
than $50 million as of August 8, 2008, received Series B-1 and/or B-
2 ARS Rights. The Exercise Period for Series B-1 and B-2 ARS Rights
began January 2, 2009, and ended January 4, 2011.
Eligible Customers not eligible for Series A-1 and/or A-2 or
Series B-1 and/or B-2 ARS Rights received Series C-1 and/or C-2 ARS
Rights. The Exercise Period for Series C-1 and C-2 ARS Rights began
June 30, 2010, and ended July 2, 2012.
\8\ The Applicant confirms that with respect to the SEC, New
York and Massachusetts Settlements, notices were sent during the
weeks of October 8 and 13, 2008. The Applicant notes that the Texas
Settlement has varying notification requirements, which were
complied with.
\9\ The Applicant states that, as of this date, no pooled funds
subject to ERISA and maintained by UBS have been involved in a
Settlement.
---------------------------------------------------------------------------
9. The Applicant states that the Registration Statement described
above complies with applicable securities laws, and the Registration
Statement, including the Prospectus and the accompanying cover letter,
included disclosure of, or a fair and adequate summary of, the ARS
Rights. In addition, the Registration Statement and accompanying
documents explained what Eligible Customers had to do to participate in
the ARS Rights Offer and
[[Page 43934]]
it informed them of the relevant terms of the Settlement Agreement and
other material terms regarding their rights.
10. The Applicant states that information concerning material
amendments or changes to the ARS Rights or Registration Statement was
promptly disseminated to Eligible Customers, and such information was
also made available by means of a toll-free telephone number. In
connection with determining whether an Eligible Customer wished to
accept the ARS Rights during the Offer Period or put the ARS to UBS
during the Exercise Period, there may have been communications from
time to time between such customer and UBS in that regard. The
Applicant states that in addition to the purchase of ARS pursuant to
the ARS Rights Offer, UBS may have purchased ARS from its customers
outside the ARS Rights Offer at times and on terms other than those
provided in such offer.
11. The Applicant represents that Eligible Customers had from
October 7, 2008 to November 14, 2008 (the Offer Period) to decide
whether to accept the ARS Rights, unless the Offer Period was extended
at the discretion of UBS.\10\ In the case of the Texas Settlement,
eligible holders were entitled to sell their Auction Rate Securities to
UBS until the agreed upon dollar amount in that settlement had been
spent. In the case of any Eligible Customer that is a pooled fund
advised by UBS or a Plan sponsored by UBS for its own employees, the
decision to accept the ARS Rights Offer and any subsequent decision to
put ARS to UBS during the Offer Period (or, under the Texas Settlement,
sell the Auction Rate Securities to UBS) may have been made by UBS
after UBS determined that such purchase was in the best interest of the
UBS Plan or pooled fund. In the case of an IRA owned by an employee,
officer, director or partner of UBS, or a relative of any such persons,
the IRA owner was required to make an independent determination whether
to accept the ARS Rights Offer and any subsequent decision to put ARS
to UBS during the Offer Period (or, under the Texas Settlement, sell
the Auction Rate Securities to UBS). Other than with respect to such
IRAs, a pooled fund advised by UBS, or a Plan sponsored by UBS for its
own employees, a person independent of UBS was required to make the
determination whether to accept the ARS Rights Offer and any subsequent
decision to put ARS to UBS during the applicable Exercise Period (or,
under the Texas Settlement, sell the Auction Rate Securities to UBS),
except with respect to permitted calls under the ARS Rights, consistent
with the Registration Statement.
---------------------------------------------------------------------------
\10\ The Applicant represents that UBS extended the Offer Period
to December 19, 2008.
---------------------------------------------------------------------------
12. The Applicant states that all Eligible Customers who accepted
the ARS Rights Offer must have custodied their ARS with UBS. To the
extent that an Eligible Customer had moved its accounts from UBS, the
Eligible Customer was required to transfer its ARS to an account with
UBS but such account did not bear a custody fee.
13. Under the terms of the ARS Rights, during the appropriate
Exercise Period (as defined above), Eligible Customers who accepted the
ARS Rights Offer were entitled to put, for par value (plus accrued but
unpaid interest or dividends), any of their ARS to UBS, and UBS was
entitled to call any of those ARS, for par value (plus accrued but
unpaid interest or dividends).
14. Under Section 15 of the Texas Settlement, UBS was also required
to purchase Auction Rate Securities from certain additional categories
of Auction Rate Securities holders, if they contacted UBS. The
Applicant represents that no written offer was required under that
Settlement, although the Settlement offer was publicized by Texas.
15. The Applicant states that there were Settlements involving UBS
and the following federal and state authorities: The SEC, New York,
Massachusetts and Texas. The Applicant states that since August 2008,
UBS has purchased ARS in the amount of $18,047,380,000 pursuant to the
SEC Settlement (and the New York and Massachusetts Settlements, which
tracked the SEC Settlement) and $161,550,000 pursuant to the Texas
Settlement.\11\ The Applicant explains that while there should be no
future purchases under the SEC settlement, UBS expects there will be
such purchases under the Texas Settlement because it requires UBS to
continue to buy from Eligible Customers under the Settlement until it
has spent $200 million, which it has not done yet. Accordingly, the
Applicant is requesting prospective relief for such future Settlement
Sales and Section 15 Settlement Sales and retroactive relief for
Settlement Sales and Section 15 Settlement Sales that have already
occurred.
---------------------------------------------------------------------------
\11\ The Applicant notes that not every ARS holder who was
eligible for the ARS Rights Offer accepted such offer. Additional
ARS positions with a par value of approximately $57 million were
eligible for the ARS Rights Offer but the holders of the rights did
not accept such offer. The Applicant states that UBS has no way of
knowing how much of the foregoing $57 million in ARS remains
outstanding because the positions are not held at UBS. The Applicant
believes that a majority of those positions were repurchased by
other firms and/or redeemed by the issuer. Similarly, the Applicant
states that it does not know the dollar value of outstanding ARS
that are eligible for repurchase under the Texas Settlement. UBS is
not obligated to repurchase any further ARS relating to the ARS
Rights Offering. However, UBS is obligated to repurchase eligible
ARS under the Texas Settlement up to a total of $200 million of
which $161,550,000 has been spent to date.
---------------------------------------------------------------------------
16. With respect to Unrelated Sales, the Applicant states that to
the best of its knowledge, as of December 10, 2012, no Unrelated Sale
to a Plan has occurred.\12\ However, the Applicant states that
retroactive relief (and prospective relief) is necessary in the event
that a sale of ARS by a Plan to UBS has occurred, or will occur,
outside the Settlement process.
---------------------------------------------------------------------------
\12\ The Applicant explains that a handful of unrelated sales
have occurred with written offers to buy at par value and pursuant
to a settlement agreement; however, none of these sales involved a
Plan or an IRA. In addition, the Applicant states that UBS may
facilitate sales of ARS in the market as agent for clients at their
request.
---------------------------------------------------------------------------
17. The Applicant states that the Settlement Sales, Section 15
Texas Settlement Sales and Unrelated Sales (hereinafter, each, a
Covered Sale) are in the interests of Plans. In this regard, the
Applicant states that the Covered Sales permit Plans to normalize Plan
investments. The Applicant represents that each Covered Sale has been
and will be for no consideration other than cash payment against prompt
delivery of the ARS, and such cash has equaled, and will equal, the par
value of the ARS, plus any accrued but unpaid interest or dividends.
The Applicant represents further that Plans have not paid, and will not
pay, any commissions or transaction costs with respect to any Covered
Sale.
18. The Applicant represents that the proposed exemption is
protective of the Plans. The Applicant states that, except in the case
of a Plan sponsored by UBS for its own employees (i.e., a UBS Plan),
each Covered Sale has been made, and will be made, pursuant to a
written offer (i.e., pursuant to an Unrelated Offer, an ARS Rights
Offer, or a Settlement offer made under Section 15 of the Texas
Settlement Agreement; together, an Offer). The Applicant states further
that, with limited exceptions, the decision to accept the Offer or
retain the ARS has been made, and will be made, by a Plan fiduciary or
Plan participant or IRA owner who is independent of UBS. Additionally,
each Offer has been delivered, and will be delivered, in a manner
designed to alert a Plan fiduciary that UBS intends to purchase ARS
from the Plan. Offers made in connection with an Unrelated Sale have
described, and will describe, the material terms of the Unrelated Sale,
[[Page 43935]]
including the most recent rate information for the ARS (if reliable
information is available). Either the Offer or other materials
available to the Plan have provided, and will provide, the identity and
par value of the ARS. Offers made in connection with a Settlement
Agreement specifically include, among other things: The background of
the Offer; the method and timing by which a Plan may accept the Offer;
the expiration date of the Offer; a description of certain risk factors
relating to the Offer; how to obtain additional information concerning
the Offer; and the manner in which information concerning material
amendments or changes to the Offer will be communicated to affected
Plans. The Applicant states that, except in the case of a UBS Plan or a
pooled fund advised by UBS, neither UBS nor any affiliate has
exercised, or will exercise, investment discretion, or has rendered, or
will render, investment advice with respect to a Plan's decision to
accept the Offer or retain the ARS. In the case of a UBS Plan or a
pooled fund maintained or advised by UBS, the decision to engage in a
Covered Sale has been made, and may be made, by UBS after UBS has
determined that such purchase is in the best interest of the UBS Plan
or pooled fund. The Applicant represents further that Plans have not
waived, and will not waive, any rights or claims in connection with any
Covered Sale except where permitted under a Section 15 Texas Settlement
Sale.\13\
---------------------------------------------------------------------------
\13\ The Applicant states that while there may have been, or may
be, communication between a Plan and UBS subsequent to an Offer,
such communication has not involved, and will not involve, advice
regarding whether the Plan should accept the Offer.
---------------------------------------------------------------------------
19. The Applicant represents that the proposed exemption, if
granted, would be administratively feasible. In this regard, the
Applicant notes that each Covered Sale has occurred, and will occur, at
the par value of the affected ARS, plus any accrued but unpaid interest
or dividends, and such value is readily ascertainable. The Applicant
represents further that UBS has maintained, and will maintain, the
records necessary to enable the Department and Plan fiduciaries, among
others, to determine whether the conditions of this exemption, if
granted, have been met.
20. In summary, the Applicant represents that the transactions
described herein satisfy the statutory criteria of section 408(a) of
the Act because, among other things:
(a) Except in the case of a UBS Plan or a Section 15 Texas
Settlement Sale, each Covered Sale has been made and shall be made
pursuant to a written Offer;
(b) Each Covered Sale has been and shall be for no consideration
other than cash payment against prompt delivery of the ARS;
(c) The amount of each Covered Sale has equaled and shall equal the
par value of the ARS, plus any accrued but unpaid interest or
dividends;
(d) No Plan has waived nor shall waive any rights or claims in
connection with any Covered Sale except as permitted under a Section 15
Texas Settlement Sale;
(e) Except in the case of a UBS Plan or a pooled fund maintained or
advised by UBS:
(1) The decision to accept an Offer or retain the ARS has been made
and shall be made by a Plan fiduciary or Plan participant or IRA owner
who is independent of UBS; and
(2) neither UBS nor any affiliate has exercised or shall exercise
investment discretion or render investment advice within the meaning of
29 CFR 2510.3-21(c) with respect to the decision to accept the Offer or
retain the ARS except with respect to permitted calls under the ARS
Rights, consistent with the Registration Statement;
(f) Plans have not paid and shall not pay any commissions or
transaction costs with respect to any Covered Sale;
(g) A Covered Sale has not been and shall not be part of an
arrangement, agreement or understanding designed to benefit a party in
interest to the affected Plan; and
(h) UBS has made available and shall make available in connection
with an Unrelated Sale the material terms of the Unrelated Sale,
including the most recent rate information for the ARS (if reliable
information is available), and the identity and par value of the ARS.
Notice to Interested Persons
The Applicant represents that the potentially interested
participants and beneficiaries cannot all be identified and therefore
the only practical means of notifying such participants and
beneficiaries of this proposed exemption is by the publication of this
notice in the Federal Register. Comments and requests for a hearing
must be received by the Department no later than 30 days from the date
of publication of this notice of proposed exemption in the Federal
Register.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments may be posted on the
Internet and can be retrieved by most Internet search engines.
FOR FURTHER INFORMATION CONTACT: Anna Mpras Vaughan of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
The ABB Inc. Cash Balance Pension Plan (the Cash Balance Plan); the
Cash Balance Pension Plan for Certain Represented Employees of ABB Inc.
(the Union Cash Balance Plan); the Pension Plan for Employees of the
Process Analytics Division of ABB Inc. Represented by the Laborer's
International Union of North America (AFL-CIO), Local No. 1304 (the
Process Analytics Plan); the Pension Plan of Fischer & Porter Company
(the Fisher & Porter Plan); and the ABB Inc. Pension Plan (UE 625 &
626) (the UE 625 & 626 Plan) (each a Plan, and collectively, the Plans)
Located in Cary, NC.
[Application Nos. D-11742 thru D-11746 respectively]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of
the Internal Revenue Code of 1986, as amended (the Code), and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(76 FR 66637, 66644, October 27, 2011).\14\ If the exemption is
granted, the restrictions of sections 406(a)(1)(A) and 406(b)(1) and
(b)(2) of the Act and the sanctions resulting from the application of
section 4975(c)(1)(A) and (E) of the Code, shall not apply, to the in-
kind contribution (the Contribution) of certain U.S. Treasury Bills
(the Securities) to the Plans by ABB Inc., a party in interest with
respect to the Plans, on September 14, 2012, provided that the
following conditions are satisfied:
---------------------------------------------------------------------------
\14\ For purposes of this proposed exemption, references to the
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
(a) The fair market value of the Securities was determined by ABB
Inc. based on the closing price of the Securities on the date of
Contribution (the Contribution Date) as quoted by Bloomberg L.P., an
independent third party in the business of providing financial data;
(b) The Securities represented less than 12% of the assets of any
Plan;
(c) The terms of the Contribution were no less favorable to the
Plans than those
[[Page 43936]]
negotiated at arm's length under similar circumstances between
unrelated parties;
(d) The Plans paid no commissions, costs or fees with respect to
the Contribution; and
(e) ABB Inc. reviewed the methodology used to value the Securities
and ensured that the Plans received the fair market value of the
Securities.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of September 14, 2012.
Summary of Facts and Representations
Parties to the Covered Transaction
1. ABB Inc. is the U.S. subsidiary of Asea Brown Boveri Ltd. (ABB),
a multinational corporation operating primarily in robotics, power, and
automation technologies, headquartered in Zurich, Switzerland.\15\ ABB
Inc. is headquartered in Cary, North Carolina and employs approximately
20,000 individuals in the U.S. ABB Inc.'s five main divisions include:
power products, power systems, discrete automation and motion, low
voltage products, and process automation. ABB Inc. provides or has
provided a retirement benefit to its employees through the following
defined benefit plans:
---------------------------------------------------------------------------
\15\ The ABB group of related companies operates in
approximately 100 countries and employs 145,000 worldwide.
---------------------------------------------------------------------------
A. The Cash Balance Plan, which is ABB Inc.'s largest Plan, is a
cash balance plan that was established on January 1, 1992. The Cash
Balance Plan covers eligible employees of ABB Inc., ABB Treasury Center
USA, and Kuhlman Electric Corporation. As of December 31, 2011, the
Cash Balance Plan was frozen to new participants and benefit accruals.
ABB Inc. states that, for the plan year beginning January 1, 2012, the
Cash Balance Plan had an Adjusted Funding Target Attainment Percentage
(AFTAP) of 112.29%. Further, as of April 30, 2012, the Cash Balance
Plan had assets of $820,244,694, and, as of June 16, 2012, the Plan had
16,263 participants and beneficiaries.
B. The Union Cash Balance Plan, established on July 1, 1999, is a
single-employer cash balance plan providing pension benefits for
eligible collectively-bargained employees of ABB Jefferson City. ABB
Inc. states that, for the plan year beginning January 1, 2012, the
Union Balance Cash Plan had an AFTAP of 113.72%. Further, as of April
30, 2012, the Union Cash Balance Plan had assets of $40,040,132, and,
as of June 26, 2012, the Union Cash Balance Plan had 697 participants
and beneficiaries.
C. The Process Analytics Plan is a defined benefit plan established
on February 1, 1984. It covers eligible collectively-bargained
employees who are employed at the ABB Inc. plant in Lewisburg, West
Virginia. ABB Inc. states that, as of the plan year beginning January
1, 2012, the Process Analytics Plan had an AFTAP of 120.39%. Further,
as of April 30, 2012, the Plan had assets of $7,660,258 and, as of June
26, 2012, the Plan had 161 participants and beneficiaries.
D. The Fischer & Porter Plan is a defined benefit plan that was
established on January 1, 1947. It covers certain collectively
bargained employees working at the ABB Inc. location in Warminster,
Pennsylvania. ABB Inc. states that, as of the plan year beginning
January 1, 2012, the Fischer & Porter Plan had an AFTAP of 114.16%.
Further, as of April 30, 2010, the Fischer & Porter Plan had assets of
$57,762,579, and, as of June 26, 2012, the Plan had 1,466 participants
and beneficiaries.
E. The UE 625 & 626 Plan is a defined benefit plan that was
established on September 15, 1984. It covers certain eligible employees
represented under a collective bargaining agreement by the United
Electrical, Radio and Machine Workers of America (UE). The UE 625 & 626
Plan had an AFTAP of 121.70% as of January 1, 2012. Further, as of
April 30, 2012, the UE 625 & 626 Plan had assets of $18,854,815, and,
as of June 26, 2012, the Plan had 221 participants and beneficiaries.
2. The assets of the Plans are held in the ABB Inc. Master Trust
(the Master Trust) for which the Bank of NY Mellon serves as the
trustee. The ABB Inc. Pension Review Committee (PRC) has investment
discretion over the assets of the Plans including those additional
assets that would be covered by the proposed exemption, if granted. ABB
Inc. maintains a risk management committee (the Pension and Risk
Management Committee), comprised of two to three employees, that
advises the PRC regarding the investment of the assets in the Master
Trust. However, the PRC is the entity responsible for implementing
investment decisions on behalf of ABB Inc. Towers Watson (the Actuary),
a Delaware corporation, serves as the actuary for each of the Plans.
Contribution of the Securities
3. ABB Inc. represents that each of the Plans has had an AFTAP
equal to or in excess of 100% each year since 2010. In addition, ABB
Inc. states that on June 1, 2012, the PRC increased the Master Trust's
cash target allocation from 10% to 20% for a period of 6 months due to
recent volatility in the equity markets. ABB Inc. notes that the PRC
determined that it was prudent to increase the cash target allocation
to provide flexibility in the event that changes in the Master Trust's
investments needed to be made. Furthermore, ABB Inc. desired to
contribute additional cash and cash equivalents to the Master Trust, as
described below, which would affect the amount of plan assets allocated
to cash.
4. ABB Inc. represents that it sought to make a contribution (the
Contribution) of Treasury Bills (the Securities) to the Master Trust as
part of its long-term approach to having well-funded pension plans.
According to ABB Inc., no additional contributions were required to be
made to the Plans in 2012. ABB Inc. states that the decision regarding
which Plans would be funded by the Contribution was based on a number
of factors, including the Plans' funded status and projected normal
costs. Furthermore, the Contributions would be well in excess of the
minimum contribution requirements of the Plans.
5. ABB Inc. states that it determined to make the Contribution in
the form of Treasury Bills, because a contribution of cash-equivalent
securities will garner more favorable accounting treatment than cash
when used to fund ABB Inc.'s pension liabilities. ABB Inc. explains
that the contribution was reported on ABB Inc.'s financial statements
under U.S. accounting standards as a use of cash from investing
activities and was disclosed in the notes to the financial statements.
According to ABB Inc., this will allow the company to avoid burdening
current year gross cash flows that would occur if ABB Inc. contributed
cash. ABB Inc. states that, consequentially, readers of their financial
statements will be able to better distinguish between current
operational performance of ABB Inc. from a significantly higher than
normal Plan contribution event, and any potential negative impact of
the Contribution on ABB Inc.'s cost of capital will be limited.
6. ABB Inc. states that, in order to effect the Contribution, it
purchased Treasury Bills in two separate acquisitions. On June 7, 2012,
ABB Inc. acquired Treasury Bills in the maturity amount of $14,100,000
with an effective yield of 0.086%. On June 19, 2012, ABB Inc. acquired
additional Treasury Bills in the maturity amount of $4,025,000 with an
effective yield of 0.089%. Both purchases occurred over-the-counter and
from unrelated parties. The purchased Treasury Bills were placed in an
ABB Inc. account at Credit Suisse Securities (Credit Suisse). The total
[[Page 43937]]
value of the Securities at their four-month maturity date on September
27, 2012 was $18,125,000.
7. On September 14, 2012, based on the recommendation of the
Pension and Risk Management Committee, the PRC voted to contribute the
Securities to the Plans, and the Securities were contributed on the
same date. Credit Suisse notified ABB Inc. that the September 14, 2012
closing price for Treasury Bills maturing as of September 27, 2012, as
reported in Bloomberg L.P. pricing services, was 99.9978333. Based on
this pricing information, ABB Inc. calculated the value of the
Securities on the date of Contribution (the Contribution Date) as
$18,124,607 ($18,125,000 maturity value x 99.9978333 closing
price).\16\
---------------------------------------------------------------------------
\16\ According to ABB Inc., on December 12, 2012, Credit Suisse
provided ABB Inc. with a computer screenshot of the closing price of
the Securities on September 14, 2012, as reported by Bloomberg L.P.,
which displayed a closing price of 99.997563: 0.00027 less than what
Credit Suisse previously reported. The resulting revised
Contribution Date value was $49 less than the amount originally
calculated. To ensure that the Plans were adequately protected with
respect to the Contribution, ABB Inc. contributed $49, plus interest
calculated at 8% from the date of contribution up to the date such
interest was paid to the Plans.
The Department is not offering its view whether ABB Inc.'s use
of the original closing price for the Securities in fulfillment of
its funding, reporting and disclosure obligations comports with its
duties under section 404(a) of the Act, which requires, among other
things, that a fiduciary discharge its duties with respect to a plan
solely in the interest of the Plans' participants and beneficiaries,
and in a prudent fashion.
---------------------------------------------------------------------------
8. Upon their receipt by the Master Trust, the Securities, valued
at $18,124,607, were allocated as follows:
----------------------------------------------------------------------------------------------------------------
Allocation of Allocation of Percentage of Contribution
Plan face value of FMV of total Total plan as % of plan
securities securities contribution assets \17\ assets
----------------------------------------------------------------------------------------------------------------
Cash Balance Plan............... $14,100,000 14,099,695 77.79 820,244,694 1.72
Process Analytics Plan.......... 600,000 599,987 3.31 7,660,258 7.83
UE 625 & 626 Plan............... 2,200,000 2,199,952 12.14 18,854,815 11.67
Fisher & Porter Plan............ 725,000 724,984 4.00 57,762,579 1.26
Union Cash Balance Plan......... 500,000 499,989 2.76 40,040,132 1.25
Totals...................... 18,125,000 18,124,607 100 944,562,478 1.92
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\17\ All asset values are based on fair market value data as of
April 30, 2012.
---------------------------------------------------------------------------
ABB Inc. states that it allocated the face value of the Securities
among the Plans based on preliminary 2012 funding valuation projections
prepared by the Actuary. ABB Inc. states that the amounts allocated to
the Union Cash Balance, the Process Analytics Plan, the UE 625 & 626
Plan, and the Fischer & Porter Plan were the amounts needed to increase
each Plan's projected 1/1/2012 AFTAP above 100%.\18\ The Securities
matured two weeks later, on September 27, 2012, at $18,125,000.
---------------------------------------------------------------------------
\18\ ABB Inc. notes that the projected funding valuation results
prepared by the Actuary and ABB Inc.'s allocation decisions were
made prior to the passage of the Moving Ahead for Progress in the
21st Century Act (MAP-21), legislation enacted on July 6, 2012,
that, among other things, changed the interest rate that pension
plans use to measure their liabilities thereby impacting the Plans'
2012 funding results. After the passage of MAP-21, the amounts
allocated to the Plans were not needed to increase the AFTAP above
100%.
---------------------------------------------------------------------------
9. ABB Inc. represents that the Contribution did not produce a
material change in the AFTAP for any Plan, as each Plan's AFTAP
exceeded 100% irrespective of the Contribution. ABB Inc. states that
following the Contribution the funding status of the Plans increased as
follows:
----------------------------------------------------------------------------------------------------------------
Estimated AFTAP
without AFTAP with Increase in AFTAP
Plan discounted discounted due to securities
securities securities contribution
contribution contribution
----------------------------------------------------------------------------------------------------------------
Cash Balance Plan...................................... 110.44 112.29 1.85
Process Analytics Plan................................. 112.35 113.72 1.37
UE 625 & 626 Plan...................................... 111.74 120.39 8.65
Fisher & Porter Plan................................... 109.09 121.70 12.61
Union Cash Balance Plan................................ 112.78 114.16 1.38
----------------------------------------------------------------------------------------------------------------
Request for Exemptive Relief
10. ABB Inc. requests exemptive relief for the Contribution, which
represents an in-kind contribution to the Plans from ABB Inc., a party
in interest with respect to the Plans. In this regard, ABB Inc. states
that the PRC, which is a fiduciary with respect to the Plans, caused a
sale or exchange between a party in interest and the Plans prohibited
by section 406(a)(1)(A) of the Act. Furthermore, ABB Inc. states that
the Contribution violated sections 406(b)(1) and (2) of the Act. In
this regard, ABB Inc. explains that the PRC, as a fiduciary with
respect to the Plans, dealt with the assets of the Plans in its own
interest or its own account in violation of 406(b)(1) of the Act and
acted in a capacity where its interests were adverse to the interests
of the Plans and the interests of the participants and beneficiaries of
the Plans in violation of 406(b)(2) of the Act.
Statutory Findings
11. ABB Inc. represents that the Contribution was administratively
feasible because it was a one-time transaction that requires no further
action by the Department.
12. ABB Inc. represents that the Contribution was in the interests
of the Plans and their participants and beneficiaries because the
Contribution, as allocated amongst the Plans, was in excess of the
minimum required contribution for each of the Plans. In this regard,
ABB Inc. notes that it was not required to make any contributions to
the Plans for the 2012 Plan Year. Furthermore, each of the Plans had
higher AFTAPs as a result of the Contribution. As illustrated in the
above table, the increases ranged from 1.37% for the Process Analytics
Plan to 12.61% for the Fischer & Porter Plan. ABB Inc. emphasizes that,
absent the
[[Page 43938]]
Contribution, these increases would not have occurred.
13. ABB Inc. states that the Contribution was protective of the
Plans and of their participants and beneficiaries because the
Securities are cash equivalents with a readily ascertainable fair
market value, which are guaranteed by the U.S. Treasury. According to
ABB Inc., it determined the value of the Securities as of the date of
the Contribution based on an independent, third party source in the
business of providing financial data, and the PRC ensured that the
Plans received the full fair market value of the Securities.
Furthermore, ABB Inc. determined that the fair market value of the
Securities was unlikely to fluctuate to any significant degree such
that the Contribution posed little risk of abuse or loss that would
affect the Plans' participants or beneficiaries.
Moreover, ABB Inc. states that the Securities were purchased from
unrelated third parties and matured within two weeks of the
Contribution Date. ABB Inc. states further that the Plans paid no fees,
commissions or costs in connection with the Contribution. Finally, ABB
Inc. represents that, had the Plans needed to sell the Securities prior
to their maturity, ABB Inc. would have covered all transaction costs
associated with such sale.
Summary
14. In summary, ABB Inc. represents that the Contribution satisfied
the statutory requirements for an exemption under section 408(a) of the
Act because:
(a) The fair market value of the Securities was determined by ABB
Inc. based on the closing price of the Securities on the Contribution
Date as quoted by Bloomberg L.P., an independent third party in the
business of providing financial data;
(b) The Securities represented less than 12% of the assets of any
Plan;
(c) The terms of the Contribution were no less favorable to the
Plans than those negotiated at arm's length under similar circumstances
between unrelated parties;
(d) The Plans paid no commissions, costs or fees with respect to
the Contribution; and
(e) The PRC reviewed the methodology used to value the Securities
and ensured that the Plans received the fair market value of the
Securities.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons in the manner agreed upon by ABB Inc. and the Department within
15 days of the date of publication in the Federal Register. Such notice
will contain a copy of the notice of proposed exemption, as published
in the Federal Register, and a supplemental statement, as required
pursuant to 29 CFR 2570.43(a)(2). The supplemental statement will
inform interested persons of their right to comment on and to request a
hearing with respect to the pending exemption. Written comments and
hearing requests are due within 45 days of the publication of the
notice of proposed exemption in the Federal Register. All comments will
be made available to the public.
Warning: Do not include any personally identifiable information
(such as name, address, or other contact information) or
confidential business information that you do not want publicly
disclosed. All comments may be posted on the Internet and can be
retrieved by most Internet search engines.
For Further Information Contact: Ms. Jennifer Erin Brown of the
Department at (202) 693-8352. (This is not a toll-free number.)
American International Group, Inc. Incentive Savings Plan (the Savings
Plan), American General Agents' & Managers' Thrift Plan (the Thrift
Plan), and Chartis Insurance Company--Puerto Rico Capital Growth Plan
(the Chartis Plan) (collectively, the Plans) Located in New York, NY
and Puerto Rico
[Application Nos. D-11767, D-11768, and D-11769]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code, and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (76 FR 46637, 66644, October 27, 2011).
Section I. Transactions
If the proposed exemption is granted:
(a) The restrictions of sections 406(a)(1)(A), 406(a)(1)(E),
406(a)(2), 406(b)(1), 406(b)(2) and 407(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1)(A) and (E) of the Code,\19\ shall not apply for
the ten-year period, effective January 19, 2011 through January 19,
2021, to:
---------------------------------------------------------------------------
\19\ For purposes of this proposed exemption, references to
specific provisions of Title I of the Act, unless otherwise
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
(1) The acquisition by the Savings Plan and the Thrift Plan of
certain warrant rights (the Warrants) from American International
Group, Inc. (AIG), a party in interest with respect to the Savings Plan
and the Thrift Plan; and
(2) The holding of the Warrants by the Savings Plan and the Thrift
Plan.
(b) The restrictions of sections 406(a)(1)(A), 406(a)(1)(E),
406(a)(2), 406(b)(1), 406(b)(2) and 407(a) of the Act \20\ shall not
apply to:
---------------------------------------------------------------------------
\20\ It is represented that the fiduciaries of the Chartis Plan
have not made an election, under section 1022(i)(2) of the Act,
whereby such plan would be treated as a trust created and organized
in the United States for purposes of tax qualification under section
401(a) of the Code. Further, it is represented that jurisdiction
under Title II of the Act does not apply to the Chartis Plan.
Accordingly, the Department, herein, is not providing any relief
from the prohibitions, as set forth in Title II of the Act, in
connection with the acquisition and holding of the Warrants by the
Chartis Plan.
---------------------------------------------------------------------------
(1) The acquisition by the Chartis Plan of the Warrants from AIG, a
party in interest with respect to the Chartis Plan; and
(2) The holding of the Warrants by the Plans.
Section II. Conditions
The relief provided in this proposed exemption is conditioned upon
adherence to the material facts and representations set forth in the
application file, and upon compliance with the conditions, as set forth
herein.
(a) All decisions regarding the holding and sale of the Warrants
have been and will be made by the Plans' participants;
(b) The Plans' acquisition of the Warrants resulted from an
independent act of AIG as a corporate entity, and without any
participation on the part of the Plans;
(c) The acquisition of the Warrants by the Plans occurred in
connection with a recapitalization plan approved by the Board of
Directors of AIG, in which all holders of AIG common stock, including
the Plans, were treated exactly the same;
(d) All holders of AIG common stock, including the Plans, were
issued the same proportionate number of Warrants based on the number of
shares of AIG common stock held by such shareholder;
(e) The acquisition of the Warrants by the Plans was made in a
manner that was consistent with provisions of each such Plan for the
individually-directed investment of participant accounts;
(f) The Plans did not pay any fees or commissions in connection
with the acquisition of the Warrants;
(g) The Plans did not pay, nor will the Plans pay, any fees or
commissions in connection with the holding of the Warrants;
(h) The Plans did not pay, nor will the Plans pay, any brokerage
fees or
[[Page 43939]]
commissions to any broker affiliated with AIG, Chartis, or the Trustees
in connection with the sale of the Warrants; and
(i) AIG will provide annual written notices to all participants in
the Plans holding Warrants to remind them to sell their Warrants before
such Warrants expire on January 19, 2021.
DATES: Effective Date: This proposed exemption, if granted, will be
effective for the period commencing January 19, 2011 through January
19, 2021.
Summary of Facts and Represenatations
1. AIG, a Delaware corporation with its headquarters in New York,
NY, operates in over 90 countries across the world, including Puerto
Rico and the Virgin Islands. As a holding company with subsidiaries,
AIG engages primarily in a broad range of insurance and insurance-
related activities. Among the wholly owned subsidiaries of AIG is
Chartis Insurance Company (Chartis), which is headquartered in San
Juan, Puerto Rico.
2. AIG sponsors the Savings Plan and the Thrift Plan, which are
individually-directed, defined contribution plans that are intended to
satisfy the requirements of section 401(a) of the Code and section
404(c) of the Act. As of December 31, 2011, the Savings Plan had 39,192
participants and $2,783,237,363 in assets, of which $8,177,958.39 were
invested in AIG common stock, representing 0.29% of such Plan's total
assets. As of December 31, 2011, the Thrift Plan had 2,462 participants
and $74,443,107 in assets, of which $483,035.01 were invested in AIG
common stock, representing 0.65% of the assets of such Plan. The
directed trustee of the Savings Plan and the Thrift Plan is Mercer
Trust Company (Mercer), a New Hampshire limited purpose bank.
3. The Chartis Plan, which is sponsored by Chartis, is an
individually-directed, defined contribution plan that is intended to
satisfy the requirements of Code section 401(a), although it has not
elected to be subject to the qualification requirements of the Code and
section 404(c) of the Act. The Chartis Plan is also intended to comply
with the requirements of sections 1165(a) and (e) of the Puerto Rico
Internal Revenue Code of 1994, as amended. As of December 31, 2011, the
Chartis Plan had 234 participants and held $8,269,051 in total assets,
of which $13,283.74 were invested in AIG common stock, representing
0.16% of the assets of such Plan. The directed trustee of the Chartis
Plan is Banco Popular De Puerto Rico \21\ (Banco Popular), which is
organized and exists under the laws of the Commonwealth of Puerto Rico.
---------------------------------------------------------------------------
\21\ Mercer and Banco Popular are together referred to herein as
the ``Trustees.''
---------------------------------------------------------------------------
4. In 2008, the U.S. Government provided significant financial
assistance to AIG. In connection with this assistance, AIG issued
preferred stock to a trust which held such stock for the sole benefit
of the U.S. Department of the Treasury (Treasury). The preferred stock
entitled Treasury to approximately 79.8% of the voting power in AIG.
On September 30, 2010, a blueprint was announced for the eventual
exit of the U.S. Government from its investment in AIG. In this regard,
on December 8, 2010, AIG announced that it had entered into a
recapitalization agreement with Treasury. On January 14, 2011, the
recapitalization plan was completed. As part of the plan, the preferred
stock previously held by Treasury in the trust was exchanged for
approximately 1.655 billion shares of AIG common stock. This resulted
in Treasury holding approximately 92% of AIG's common stock.
5. In addition, AIG declared a ``warrant dividend'' on shares of
AIG common stock outstanding on January 13, 2011 (the Record Date).
Holders of AIG common stock on the Record Date received .533933
Warrants for each share of common stock. Each Warrant entitles the
holder to purchase one share of AIG common stock at a strike price of
$45 per share. The Warrants, like AIG common stock, are tradable on the
New York Stock Exchange (NYSE) under the ticker symbol ``AIGWS.'' The
Warrants expire on January 21, 2021, if not sold or exercised.
The AIG Warrants were distributed at the close of business on
January 19, 2011 to AIG common shareholders of record, including the
Plans, as of the Record Date. The participants in the Plans were
notified by AIG of the Warrant distribution through several written
communications. The Warrants were distributed to 12,384 participants in
the Savings Plan, 902 participants in the Thrift Plan, and to 39
participants in the Chartis Plan. The Plans did not incur any fees or
commissions in connection with the acquisition of the Warrants, nor are
the Plans incurring any fees or commissions in connection with the
holding of such Warrants.
6. Until May 4, 2009, the Plans permitted participants to invest in
the AIG Stock Fund, which held primarily AIG common stock. The AIG
Stock Fund was closed to new investors as of May 4, 2009, with existing
investors able to transfer out at any time. In other words,
participants of the Plans were no longer able to purchase shares of AIG
common stock as part of their investment options. As of the Record
Date, the AIG Stock Fund held 424,787 shares of AIG common stock or
0.026% of shares of outstanding AIG common stock. As a result of such
stock holdings, the AIG Stock Fund was issued approximately 226,808
Warrants on January 19, 2011.
7. Between January 19, 2011 and February 13, 2011, the Warrants
were held on behalf of the Plans in the AIG Stock Fund. During this
period, a unit in the AIG Stock Fund consisted of: (a) An interest in
AIG common stock held by the AIG Stock Fund; (b) an interest in the
Warrants held by such Fund; and (c) an interest in the cash vehicle
held by such Fund. The AIG Stock Fund units were indivisible,
therefore, any redemption by a participant in the Plans of an AIG Stock
Fund unit during this period resulted in the receipt of cash by the
participant representing the participant's interest in the Warrants and
the cash vehicle, in addition to either AIG common stock or cash in
lieu thereof, at the participant's election.
8. On February 15, 2011, all the Warrants remaining in the AIG
Stock Fund (222,226.901) were moved into a newly-created fund (the AIG
Warrant Fund). The AIG Warrant Fund, like the AIG Stock Fund, is a
frozen fund. As of March 6, 2013, the AIG Warrant Fund held Warrants on
behalf of 9,179 Savings Plan participants, 689 Thrift Plan
participants, and 25 Chartis Plan participants. While participants in
the Plans may sell the Warrants held on their behalf in the AIG Warrant
Fund, they may not exercise such Warrants, unlike other Warrant
holders. According to AIG, the costs and administrative complexities
required to allow participants to exercise the Warrants would be
extraordinary. For instance, AIG represents that the exercise could
have violated an amendment in each Plan preventing participants from
investing their future contributions in AIG common stock. In addition,
AIG states that such an exercise could be problematic to implement
within a 401(k) account. In this regard, AIG explains that it would be
required to receive cash in an exchange for AIG common stock. Because
the Plans do not offer cash-only holding accounts, if such accounts
were created, participants would need to be counseled and guided, as to
how to generate sufficient fund balances to affect the Warrant
exercise. Further, AIG explains that participants in the Plans would be
paying cash to
[[Page 43940]]
their sponsors, which concerned AIG's counsel.
Finally, AIG notes that a system would have to be established with
the Plans in order for AIG to send shares of AIG common stock to the
Plans' Trustees. This system, according to AIG and Mercer, would have
cost ``several hundred thousand dollars'' over the life of the
Warrants. Thus, in light of the fact that only approximately one-third
of the participants would be affected and the cost and difficulty in
making such a system work, AIG decided that it was not an appropriate
use of the Plans' assets for participants in the Plans to have the
ability to exercise the Warrants.
10. To remind participants in the Plans to sell their Warrants
before the ten year holding period which expires on January 19, 2021,
AIG will provide annual written notices to all participants in the
Plans who hold Warrants. Such sales are being conducted on the open
market in blind transactions. In connection with the sales of the
Warrants, no commissions or fees will be paid to brokers who are
affiliated with AIG, Chartis or the Plans' Trustees.\22\
---------------------------------------------------------------------------
\22\ The applicant represents that a $0.023 commission per
Warrant traded is paid to State Street Global Markets (State
Street). State Street is the executed broker for both of the
Trustees, Mercer and Banco Popular.
---------------------------------------------------------------------------
11. AIG notes that the Plans' acquisition and holding of the
Warrants constitute prohibited transactions in violation of the Act. In
this regard, section 406(a)(1)(A) of the Act prohibits the sale or
exchange of property between a plan and a party in interest. AIG is a
party in interest with respect to each of the Savings Plan and Thrift
Plan as an employer any of whose employees are covered by such Plans,
as described under section 3(14)(C) of the Act. AIG is also a party in
interest with respect to the Chartis Plan as an owner of 50% or more of
the voting stock of Chartis, as described under section 3(14)(E) of the
Act. Therefore, the acquisition of the Warrants by the Plans resulted
in a prohibited sale or an exchange of property between the Plans and
AIG.
The Warrants are also ``employer securities'' within the meaning of
section 407(d)(1) of the Act because they are securities issued by an
employer of employees covered by the Plans, or by an affiliate of such
employer. Section 407(a)(1)(A) of the Act prohibits a plan from
acquiring or holding ``any employer security'' which is not a
``qualifying employer security.'' The Warrants are not qualifying
employer securities, as defined under section 407(d)(5) of the Act,
because they are not (a) stock, (b) marketable obligations, or (c)
interests in a publicly traded partnership. Therefore, the Plans'
acquisition and holding of the Warrants violate section 407(a)(1)(A) of
the Act.
Further, section 406(a)(2) of the Act prohibits a fiduciary with
investment discretion from permitting a plan to hold employer
securities in violation of section 407(a) of the Act. The Trustees,
which are fiduciaries, accepted the Warrants on behalf of the Plans in
violation of section 406(a)(2) of the Act.
Section 406(b)(1) of the Act prohibits a plan fiduciary from
dealing with the assets of a plan in his own interest or own account.
Section 406(b)(2) of the Act prohibits a fiduciary from acting in any
transaction involving the plan on behalf of a party whose interests are
adverse to interests of the plan or the interests of the plan's
participants or beneficiaries. Accordingly, the Trustees' decision to
have the Plans acquire and hold the Warrants violated section 406(b)(1)
and (b)(2) of the Act.
12. Accordingly, AIG is requesting a retroactive individual
exemption from the prohibited transaction provisions described above
for the acquisition and holding of the Warrants by the Plans. AIG
represents that such an exemption would be administratively feasible
because participants in the Plans would be able to dispose of their
Warrants at their discretion and as such, no oversight would be
required by the Department. Additionally, AIG explains that the
exemption would be protective of the participants in the Plans because
the issuance of the Warrants was the result of an independent act of
AIG acting as a corporate entity, without any participation on the part
of the Plans. Moreover, the issuance of the Warrants was part of a
recapitalization that was negotiated by AIG and Treasury. Finally, AIG
represents that the proposed exemption would be in the interest of the
Plans because it permits the acquisition and holding of the Warrants.
13. In summary, AIG represents that the transactions satisfied or
will satisfy the statutory criteria for an exemption under section
408(a) of the Act, because: (a) All decisions regarding the holding and
sale of the Warrants have been and will be made by the Plans'
participants; (b) the Plan's acquisition of the Warrants resulted from
an independent act of AIG as a corporate entity, and without any
participation of the Plans; (c) the acquisition of the Warrants by the
Plans occurred in connection with a recapitalization plan approved by
the Board of Directors of AIG, in which all holders of AIG common
stock, including the Plans, were treated exactly the same; (d) all
holders of AIG common stock, including the Plans, were issued the same
proportionate number of Warrants based on the number of shares of AIG
common stock held by such shareholders; (e) the acquisition of the
Warrants by the Plans was made in a manner that was consistent with the
provisions of each such Plan for individually-directed investment of
participant accounts; (f) the Plans did not pay any fees or commissions
in connection with the acquisition of the Warrants; (g) the Plans did
not pay, nor will the Plans pay, any fees or commissions in connection
with the holding of the Warrants; (h) the Plans did not pay, nor will
the Plans pay, any brokerage fees or commissions to any broker
affiliated with AIG, Chartis or the Trustees in connection with the
sale of the Warrants; and (i) AIG will provide annual written notices
to all participants in the Plans holding Warrants to remind them to
sell their Warrants before such Warrants expire on January 19, 2021.
Notice to Interested Persons
The persons who may be interested in the publication in the Federal
Register of the Notice of Proposed Exemption (the Notice) include all
individuals who are participants in the Plans who received the
Warrants. It is represented that all such interested persons will be
notified of the publication of the Notice by first class mail, to each
such interested person's last known address within fifteen (15) days of
publication of the Notice in the Federal Register. Such mailing will
contain a copy of the Notice, as it appears in the Federal Register on
the date of publication, plus a copy of the Supplemental Statement, as
required, pursuant to 29 CFR 2570.43(b)(2), which will advise all
interested persons of their right to comment and to request a hearing.
All written comments and/or requests for a hearing must be received by
the Department from interested persons within 45 days of the
publication of this proposed exemption in the Federal Register.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments may be posted on the
Internet and can be retrieved by most Internet search engines.
FOR FURTHER INFORMATION CONTACT: Mr. Asrar Ahmed of the Department at
(202)
[[Page 43941]]
693-8557. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 12th day of July 2013.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2013-17498 Filed 7-19-13; 8:45 am]
BILLING CODE 4510-29-P